When rebates go bad

There’s a long-standing argument over the extent to which rebound effects eat up the gains of energy-conserving technologies, and whether energy conservation programs are efficient. I don’t generally side with the hardline economists who argue that conservation programs fail a cost benefit test, because I think there really are some $20 bills scattered about, waiting to be harvested by an intelligent mix of information and incentives. At the same time, some rebate and credit programs look pretty fishy to me.

On the plus side, I just bought a new refrigerator, using Montana’s $100 stimulus credit. There’s no rebound, because I have to hand over the old one for recycling. There is some rebound potential in general, because I could have used the $100 to upgrade to a larger model. Energy Star segments the market, so a big side-by-side fridge can pass while consuming more energy than a little top-freezer. That’s just stupid. Fortunately, most people have space constraints, so the short run price elasticity of fridge size is low.

On the minus side, consider tax credits for hybrid vehicles. For a super-efficient Prius or Insight, I can sort of see the point. But a $2600 credit for a Toyota Highlander getting 26mpg? What a joke! Mercifully that foolishness has been phased out. But there’s plenty more where that came from.

Consider this Bad Boy:

The Zero-Emission Agricultural Utility Terrain Vehicle (Agricultural UTV) Rebate Program will credit $1950 in the hope of fostering greener farms. But this firm knows who it’s really marketing to:

Is there really good control over the use of the $, or is public funding just mechanizing outdoor activities where people ought to use the original low-emissions vehicle, their feet? When will I get a rebate for my horse?

1 thought on “When rebates go bad”

I’d agree those $20 bills are out there to be harvested. The question of CBA, of course, must work on two levels – individual cost-benefit and social cost-benefit. It’s the old Pareto argument; personally, ans call me a socialist of whatever if you like, I can’t really see the point of any rebates which don’t bring a higher social AND intertemporal benefit over and above the social cost. In that case, it’s just making people with investment capacity better off.

On the other hand, I think most of these rebates are designed to increase demand and boost economic activity, not necessarily to produce increased energy efficiency.

And on the other hand (is that the third hand?), that Turkey-hunting buggy is actually quite funny.